When they went on strike in 2016, members in the union for marshmallow makers chanted, “No justice, no Peeps!”
And this week, a federal appeals court said the Peeps workers had a point.
The U.S. 4th Circuit Court of Appeals ruled Thursday that Just Born Quality Confections — the firm in Bethlehem, Pa., that makes the candy known as Peeps — could not unilaterally stop enrolling new employees in a pension without paying a penalty, something it had tried to do since 2015.
The appeals court decision could have a major effect on hundreds of other companies that are trying to determine whether to continue making payments to their own multi-employer pension plans. A number of multi-employer plans have weak balance sheets, exacerbated by a wave of aging workers and new retirees. This dynamic has forced some firms to pay higher premiums to their pensions in an effort to boost solvency.
Congress is now trying to come up with its own solution, worried that taxpayers could be asked to bail out these multi-employer pensions if no action is taken.
But Thursday’s legal ruling made clear that any company that tries to unilaterally block new workers from a pension plan would have to pay a withdrawal penalty, which in Just Born’s case would exceed $60 million. The company makes about 2 billion Peeps each year, as well as other candies.
Three years ago, citing rising costs and the weak status of its multi-employer pension, Just Born insisted that it would no longer enroll new employees in the multi-employer pension it had participated in for decades. It wanted instead to divert money into a 401(k) plan for those workers. The union balked and walked, leading to a messy strike that created a major schism within the firm.
The strike and fallout had splintered the community, and both sides awaited the appeals court ruling before deciding how to proceed.
“Based on what I hear from many members of our workforce, Just Born is still viewed as a good place to work by the majority of our employees,” Ross Born, chief executive of Just Born, wrote this month in the Morning Call, a newspaper in Allentown, Pa. “Some are not happy with us of course. We aren’t perfect, but we will keep working on remaining a strong employer of choice and valued member of the Lehigh Valley community — as we have been since 1932.”
After the ruling, Born said the company was “disappointed” and would soon explore next steps. The company has continued to emphasize that the pension fund is in “critical and declining” status, which means its financial position is weak and worsening. This is in part because of the recent bankruptcy of Hostess Brands, which used to be the largest company paying into the pension.
“In the coming days, we will have further discussions on next steps,” Born said Thursday. “Our business is solid, and our associates continue to produce quality confectionery products for our customers and consumers.”
The ruling was a major victory for leadership of the Bakery, Confectionery, Tobacco Workers & Grain Millers International Union, but both the company and the union have changed markedly since the strike two years ago. Just Born has fewer workers now, and a smaller percentage of them are in the union. The local workforce had splintered during the standoff, and some wondered whether taking such a strident position might backfire.